Softbank pays $20.1B for 70% stake in Sprint

Will the deal give Sprint more leverage under the AT&T/Verizon duopoly?

Sprint has had a rough go of things over the last few years. As it’s struggled to keep its footing under the increasingly heavy duopoly of AT&T and Verizon, its market cap has plummeted 78% and at one point it was hemorrhaging some one million subscribers every quarter. Now the company is looking at making a radical new shift to launch itself back onto the playing field.

Sprint and Japanese telecommunications company Softbank announced Monday morning that Softbank will pay $20.1 billion for a 70% stake in Sprint. The deal represents the largest foreign acquisition made by a Japanese company in over 10 years.

The deal includes $12.1 billion paid out to shareholders and $8 billion in new capital to strengthen Sprint’s balance sheet. Softbank will be acquiring 55% of Sprint shares at $7.30 a piece in cash, a premium of 22% over Sprint’s Friday closing price of $5.69.

While Sprint shareholders might be pleased by the new development, Softbank shareholders aren’t so thrilled. Softbank shares dipped last week when Sprint confirmed reports that it was talking to the Japanese company about a possible investment, and then shares dropped even more Monday morning when the deal was announced.

Sprint CEO Dan Hesse will be staying on after heading Sprint since 2007. Since Hesse took the helm of Sprint five years ago, the company has sunk to never-before-seen lows. At its height in 1999, Sprint shares were trading for more than $71 a piece, but Hesse joined the team right around the time Apple debuted the first iPhone. Saddled with $15 billion in debt, Sprint has had to struggle with the stranglehold that AT&T and Verizon have on the wireless market. As of last quarter, Sprint had 56 million wireless customers, compared to AT&T’s 103.2 million and Verizon’s 94.2 million.

“This is a transformative transaction for Sprint that creates immediate value for our stockholders, while providing an opportunity to participate in the future growth of a stronger, better capitalized Sprint going forward,” said Dan Hesse, in a statement.

At a joint press conference Monday morning, Softbank CEO Masayoshi Son said that now is the time to push overseas, as Japan’s own flat economy leaves little room for growth. Softbank will form a new U.S. subsidiary, New Sprint, which will invest $3.1 billion in a newly issued Sprint convertible senior bond following the announcement.

The deal awaits approval from the Justice Department and the FCC, but it’s hard to imagine that the deal would be shot down, since it’s virtually guaranteed to ramp up competition between the four major mobile carriers—two of which have really been running the show. Sprint is the third largest carrier. Earlier this month, T-Mobile and MetroPCS, the fourth and fifth largest mobile carriers, announced their merger.